Correlation Between WisdomTree SmallCap and DXGE

Can any of the company-specific risk be diversified away by investing in both WisdomTree SmallCap and DXGE at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining WisdomTree SmallCap and DXGE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between WisdomTree SmallCap Quality and DXGE, you can compare the effects of market volatilities on WisdomTree SmallCap and DXGE and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in WisdomTree SmallCap with a short position of DXGE. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree SmallCap and DXGE.

Diversification Opportunities for WisdomTree SmallCap and DXGE

-0.09

Correlation Coefficient

WisdomTree SmallCap  DXGE

Good diversification

The 3 months correlation between WisdomTree and DXGE is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree SmallCap Quality and DXGE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DXGE and WisdomTree SmallCap is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on WisdomTree SmallCap Quality are associated (or correlated) with DXGE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DXGE has no effect on the direction of WisdomTree SmallCap i.e., WisdomTree SmallCap and DXGE go up and down completely randomly.

Pair Corralation between WisdomTree SmallCap and DXGE

Given the investment horizon of 90 days WisdomTree SmallCap Quality is expected to generate 0.44 times more return on investment than DXGE. However, WisdomTree SmallCap Quality is 2.29 times less risky than DXGE. It trades about 0.05 of its potential returns per unit of risk. DXGE is currently generating about -0.04 per unit of risk. If you would invest  3,853  in WisdomTree SmallCap Quality on October 9, 2024 and sell it today you would earn a total of  1,245  from holding WisdomTree SmallCap Quality or generate 32.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	28.57%
Values	Daily Returns

WisdomTree SmallCap Quality  vs.  DXGE

WisdomTree SmallCap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SmallCap Quality are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, WisdomTree SmallCap is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

DXGE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DXGE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, DXGE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with WisdomTree SmallCap and DXGE

The main advantage of trading using opposite WisdomTree SmallCap and DXGE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree SmallCap position performs unexpectedly, DXGE can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in DXGE will offset losses from the drop in DXGE's long position.

The idea behind WisdomTree SmallCap Quality and DXGE pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bonds Directory module to find actively traded corporate debentures issued by US companies.